Ethereum: the SEC worries by saying that “ETH transactions take place in the United States”. A disturbing shortcut. In the key document to its lawsuit against an influencer in a Texas court, the Securities and Exchange Commission (SEC) claims that transactions in ETH automatically fall under the jurisdiction of US authorities. Its main argument: the majority of the nodes of the Ethereum network are located on US soil.
SEC vs. Ian Balina: an ordinary lawsuit against an ordinary ICO
A priori, the trial between the SEC and Ian Balina is nothing special.
An active Youtuber, Balina rose to fame during the height of the ICO-mania of 2017-2018. On his YouTube channel, he promoted several pre-sale projects – including the SPRK. A token for which he gathered an investment pool via Telegram in 2018.
Caught up on patrol, Balina took to Twitter to say that the regulator's " whimsical charges " would set a "harmful precedent for venture capital backing the crypto industry " - calling his involvement in the SPRK an " investment in discount”.
Except the SEC doesn't see it that way. By hiding her connection to the project, Balina allegedly violated securities law. In the document (see image below), we also learn that the SPRK ICO managed to raise $30 million from 4,000 investors. And that Balina, through the funds raised on his Telegram pool, was interested up to 30%...
Ethereum: an “American” network for the SEC
Where the SEC complaint document gets interesting is on page 16:
“The American investors in the Balina pool irrevocably committed themselves to the transaction when, from the United States, they sent their contributions in ETH to this pool.
"Furthermore, their ETH contributions have been validated by a network of nodes on the Ethereum blockchain, which is concentrated more densely in the United States than in any other country. Accordingly, these transactions took place in the United States."
“As a result, these transactions [in ETH] took place in the United States” - sec.gov
Not wrong: the majority of Ethereum nodes are actually located in the United States. Out of 7819 knots, 3340 are located on American soil or 42.56%.
Not entirely true either: Proof of Stake (PoS) blockchain nodes are often hosted on the cloud, by services such as Google Cloud, Amazon Web Services, or Microsoft Azure. An operator physically located in Lyon or Paris has every opportunity to virtualize its installation so that it will be located in the United States.
The absence of statistics on the nodes makes any counter-argument impossible. However, the information should not be taken out of its context either, namely a legal argument in the context of a regulator-operator dispute.
Out of 7819 nodes, 3340 are American - ethernodes.org
After The Merge, a change of nature for Ethereum?
So far Ethereum and Bitcoin were not worried, the SEC considers ETH as utility tokens and BTC as real commodities.
Distinctions with variable geometry, leading in particular to a lawsuit against the Ripple project (XRP), qualified as a crypto-security (" security token ") in a legal-river case that has been going on since November 2020.
If the excerpt is worrying, it is also because it follows recent remarks by SEC Chairman Gary Gensler on cryptocurrencies and staking.
In an interview with The Wall Street Journal, Gensler stated that cryptocurrencies and intermediaries offering their holders staking would be subject to reclassification as investment contracts in transferable securities (“ securities ”). Clearly, instruments are under the control of the SEC.
Without the speech targeting a particular cryptocurrency, it is nevertheless difficult not to see a danger for all cryptocurrencies in proof of stake, starting with Ethereum post-The Merge.
It should also be seen as an attempt to reconcile staking with the principles of lending. Remember that lending platforms are required to register with the SEC.
We reported to you last February that the BlockFi platform had been ordered to pay a fine of $100 million for failing to do so.
Security or utility, Ethereum has been playing scary for the past few days after its successful merger. Support at $1200 is in sight for ETH, again fueling liquidation risks across various DeFi (MakerDAO) platforms. ETHW meanwhile, the token of rival faction ETHPoW, gained 35% in 24h.
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